Harsher energy regulations seen in Obama's second term

November 07, 2012|Nichola Groom and Braden Reddall | Reuters

(KEVIN LAMARQUE, REUTERS)

LOS ANGELES/SAN FRANCISCO (Reuters) - Energy producers braced for tighter regulation in President Barack Obama's second term, with coal companies expecting more emissions restrictions and drillers anticipating less access to federal land even as his platform promotes energy independence.

Opponents already believe Obama has waged a "war on coal" through the administration's push for stricter regulation of greenhouse gas emissions by the Environmental Protection Agency.

"Four more years of President Obama translates into additional pressure on the coal industry from the EPA and numerous environmental groups," energy investment bank Simmons & Co said in a note to investors on Wednesday.

Analysts at ClearView Energy Partners in Washington expect Obama to "continue prosecuting energy policy through regulation and administrative action, with only the courts as a check on that agenda."

Miners criticize Obama for not living up to a 2008 promise to develop clean coal technology, arguing that his policies actually preclude the construction of any new coal plants.

Alpha Natural Resources Chief Executive Kevin Crutchfield argued that the United States, with the world's largest coal reserves, should use what it has. "We would hope the administration remains true to its campaign promise to support coal as an indispensable part of our nation's energy mix," he said.

Yet up to 33 gigawatts of coal-fired power generation is estimated to be due for retirement - 3 percent of U.S. capacity. While tougher emissions regulation play a part, that change is also driven by cheap natural gas as an alternative power source.

Obama has paid plenty of lip service to natural gas because it burns cleaner than coal, and his approach to the oil and gas industry in general is more nuanced.

He has pledged to cut oil imports in half by 2020 and advocates an "all of the above" approach to developing domestic energy sources. Yet he has also said that he would roll back subsidies for oil companies and reduce U.S. reliance on oil by mandating production of more fuel-efficient vehicles.

"The Obama administration really hasn't helped the oil and gas industry," said Michael Linn, founder and former chief executive of Linn Energy. "It's going to be a tough four years."

FOOT ON GAS, TAX BREAK THREAT

More restrictions are expected for companies drilling on federal lands, as well as more rules governing water management and methane emissions. Any new rules related to hydraulic fracturing may drive up costs for active drillers including Chesapeake Energy Corp and Exxon Mobil Corp.

"You are going to have less access to federal lands and tougher government agencies," said Dan Pickering, chief investment officer at TPH Asset Management, part of energy-focused investment bank Tudor Pickering Holt in Houston.

Obama's solid support for natural gas on the campaign trail won him praise from America's Natural Gas Alliance, a lobby group. But he also wants to eliminate $46 billion in subsidies for fossil fuel companies, a plan producers vigorously oppose.

Virginia Lazenby, chair of the Independent Petroleum Association of America whose members supply 54 percent of U.S. oil and 85 percent of its natural gas, worried about potential "duplicate" federal regulation of what states already do, and rejected the call to collect more tax from the industry.

"IPAA hopes President Obama will stop his call to eliminate the crucial tax provisions of intangible drilling costs and percentage depletion, which are not subsidies at all, but allow independent producers to reinvest 150 percent of their cash flow into new energy projects," she said.

While the Obama administration put approval of TransCanada's Keystone XL pipeline on hold, eventual approval is expected, which will increase the flow of cheaper crude oil from Canada to refineries on the Gulf Coast at Port Arthur, Texas.

Companies with refineries in Port Arthur or in nearby Beaumont include Valero Energy Corp, Royal Dutch Shell, France's Total and Exxon.

FORECAST: SUNNY SPELLS, BREEZY

Obama has promised more assistance for solar and wind technology, though he will need congressional support to extend tax breaks that help those industries.

"Obama can love solar as much as he wants, but I don't know that a whole lot more is going to happen in terms of new, constructive policy," said Morningstar analyst Stephen Simko.